A new record! Spain hit hard by soaring inflation – Highest in 30 years

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The data published on Thursday reflects a rise in the cost of living of 6.7 percent over the previous year. The current month’s inflation figure is 1.1 percent higher than the 5.5 percent recorded in November.

If the data shared by the INE is to be believed then 2021 would end with average inflation of 3.1 percent, the highest level in a decade.

Last year, prices fell an average of 0.3 percent owing to the effects caused by the initial shock of the pandemic.

To find a similar price spike, one would have to go back to March 1992, when the CPI was 6.9 percent.

While the INE has not yet shared detailed information on what all has led to the spike in the inflation rate, it gave a hint about the products which are pulling up the general price index.

According to the initial trends, electricity appeared to be the main reason for the rise in price index.

The rise in food prices, which experienced a notable drop in prices in 2020, is also believed to have played a crucial role.

In December, the wholesale price of electricity averaged 242 euros per megawatt hour (€/MWh), 25 percent above November’s level, which closed with an average of 193.43 €/MWh.

Wholesale electricity – which directly affects what almost 11 million consumers pay on their bills and indirectly affects the rest – was five times more expensive in December than last year, when the average in the market was 41.97 €/MWh.

The upturn in inflation in December compared to last month has a strong correlation with the evolution of the price of electricity in the wholesale market – where retailers buy the energy that they then supply to consumers.

Leading analysts in the industry are of the view that inflation will continue to soar during the coming year, especially in the first half of the year, before gradually normalizing in 2023 and 2024.

The Bank of Spain in its latest macroeconomic projections forecasts an average inflation of 3.7% for 2022, a figure notably higher than that of other analysts such as the OECD (3.2%), the Funcas panel (2.9%) or the European Commission (2.8%).

In any case, and unlike what is happening in the United States, the predominant discourse in Spain continues to be that this inflationary outbreak will be transitory.

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Experts believe that the factors behind the rise in prices will be mitigated over the course of 2022.

In Spain and much of Europe, the most prominent one is energy prices, especially gas, a key energy source in determining the price of electricity.

Forecasts suggest that gas prices will start to drop from next spring onwards due to both an increase in supply and a fall in demand after the winter.

Additional reporting by Maria Ortega

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